How to Trade Derivatives in India

Derivative Trading In India

Derivative trading has been going on in India since a very long time. In the Indian derivative market, the trading takes place with the help of derivative securities. Derivatives are nothing but financial securities whose value depends on the underlying asset. An underlying asset for a derivative can be as follows:

  • Stocks
  • Bonds
  • Market Indices
  • Commodities
  • Currencies
  • Interest Rates

Here is everything you need to know about you can trade derivatives in India.

Derivative trading in India

If you want to do derivative trading in India, then you can do so via the National Stock Exchange (NSE), The Bombay Stock Exchange (BSE) and the Multi Commodity Exchange (MCX). Through the NSE and BSE, the derivative instruments available for trading are stocks, bonds and currency. If you want to trade in commodities, then you can do so via MCX.

There are different ways in which you can trade derivatives in India. They are as follows:

Futures Trading

In futures trading, the two parties involved in the contract, agree to buy or sell the contract at a predefined date and price in the future.

Options Trading

In Options trading, the buyer of the options contract gets the right to buy or sell a security at a pre-defined price and date but has no obligation to make the trade. This means the buyer can exit the trade.

The above two are the most preferred type of derivative trading in India. When it comes to futures contracts, these have cash settlements on the NSE. The transfer of money takes place when one party enters the contract. Here the clearing corporation takes the opposite position.

When you enter into an options contract on the NSE, if you are the buyer of the option, then you pay a premium amount for it. With this payment, you get the right, but not the obligation to buy the option at the expiration date.

NSE has various derivate products for underlying stocks in the stock market. You can trade on NSE in the following:

  • Nifty 50 Future
  • CNX IT Index
  • Bank Nifty Index
  • CNX Nifty Junior Index
  • Nifty Midcap 50 Index

Clearing and Settlement of Derivatives in India

National Clearing Limited which was formerly known as the National Securities Clearing Corporation Limited is the agency for clearing and settlement of all the deals executed in the derivatives segment. This is the legal counterparty to all the deals on NSE’s F&O segment. The deals are cleared and settle through the clearing member of NSE.

For Futures contract, there is Daily Market to Market Settlement as well as Final Settlement. For the settlement of options contract, there is Daily Premium Settlement and Final Exercise Settlement.

Online Derivative Trading In India

Many financial institutions provide you with the service to do online derivative trading in India. Online trading apps let you trade derivatives right from your phone. Indiabulls Ventures offers you the opportunity to do online trading at Zero Brokerage via the Shubh app.

The Indiabulls Shubh app is a discount broking platform which provides you with many subscription plans for unlimited trading in the share market. With this app, you can do F&O Trading, Equity Trading, and Currency Trading. The platform gives you access to NSE, BSE, NSE F&O and currency derivative segments in India. The fee structure is transparent, and you also get a free 30 day trial period.

Derivative trading has become a seamless process because of these online platforms. Is it important to note that before getting into any trades on the Indian share market, make sure you have researched the market and are aware of the risks. You can also take the services of Indian stock brokers who can help you with derivative trading in India.

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